India Eases Defense Blacklist Ban

In a dramatic departure from past defense policy, Indian authorities say they will no longer impose blanket bans on armament companies suspected of corruption or bribery. This easing of blacklisting norms will mark the end of a 10-year blanket ban imposed earlier on erring firms.

The easing of the blacklist policy appears to be a tacit admission that defense procurement is a game that can’t be played without at least some corruption. However, analysts have long argued that India has paid a heavy price for what they say are overprotective and rigid defense policies, resulting in a freeze on equipment vital for national security. Thus, the Indian army has not introduced even a single advanced 155mm artillery gun for 30 years.

That was first due to the infamous Swedish Bofors scams of the mid-1980s, which led to the ouster of then Prime Minister Rajiv Gandhi and then scandals around South African firm Denel SOC and Singapore Technologies in later years. In effect, almost all the top artillery manufacturers around the world were banned at some time or the other by the Indian government.

Optimism over the new regulations notwithstanding, experts caution that relaxed norms should not result in a less vigilant government because as a ministry official told Asia Sentinel, “not much is above the board in the world of defense purchases.”

Among scores of companies banned from doing business by the Indian government in the country are four major global ones – Singapore Technologies Kinetics, Israeli Military Industries, Rheinmetall Air Defense, Zurich, and Corporation Defence, Russia – all of who are blacklisted till 2022 for allegedly having paid bribes to India’s scandal-ridden procurement authorities.

Stung by India’s ban on its dealings with the country, Singapore Technologies even approached international courts seeking the removal of the blacklisting. It argued that it was never awarded any contract and nor was it mentioned in the charge sheet filed by India’s Central Bureau of Investigation in connection with a bribery case involving an erstwhile Ordinance Factory Board chief.

In a further reprieve for foreign firms eyeing the lucrative Indian market, those already blacklisted will be able to appeal for a review based on the merits of their cases. Further, procurement of spares for platforms and equipment already purchased from a company under the scanner will be allowed.

In addition, those guilty of corruption will be blacklisted only for a year at a time instead of the existing 10 years with fast-track investigations into the charges against them. Moreover, blacklisting will be done for a specific period of not more than a year at a time, with the aim to complete investigations into the charges against a company within six months.

The announcement comes as a relief for global armament companies keen to work with India. The country remains the world’s largest arms importer accounting for 14 percent of global imports between 2011 and 2015 according to the global think-tank Stockholm International Peace Research Institute. The institute’s data also shows that India’s arms imports remain three times greater than those of its rivals China and Pakistan.

However, while the new policy eliminates blanket blacklisting of entire conglomerates, companies found guilty of violating norms, especially an “integrity pact” that forms a part of all defense contracts, can still be banned from doing business in India.

The idea behind the freshly-minted policy – Guidelines of the Ministry of Defence for Penalties in Business Dealings with Entities, launched by Defense Minister Manohar Parrikar this week – is to ensure probity and transparency in defense deals without compromising the country’s modernization plans.

The Ministry will also review all cases of blacklisted firms as it prepares a new list of such entities following the new policy, which combines heavy fines with graded banning rather than blanket bans. The review will include about a dozen firms that came under blanket blacklisting under the previous regime annoying the defense forces who felt it bottlenecked their modernization plans.

Parrikar, who assumed office last year, is regarded as a strong advocate of the US-style rule of imposing tough financial penalties on companies found guilty of wrongdoing rather than blanket bans.

The wholesale banning of arms companies, which especially became the norm under then-defense minister A K Antony, and military modernization projects were often derailed while compromising operational readiness. Experts see the new reforms as a progressive step vital to reinvigorating the defense forces.

“Thank God, we’ll not be throwing out the baby with the bathwater anymore,” says Subhash Vandrewala, a defense analyst and columnist. “The earlier stock bans often proved counter-productive by derailing military modernization projects. The new policy aims to balance isolating corrupt companies while ensuring that military modernization isn’t sacrificed. “

Analysts say the trigger for a new liberalized policy was the ban on Italian multinational, Finmeccanica, in 2013, after Italian investigators arrested and incarcerated the company’s chairman, Giuseppe Orsi, year on charges of bribing Indian officials to facilitate the sale by group company, AgustaWestland, of AW-101 VVIP helicopters to India.

Under the new policy, AgustaWestland will be liable for blacklisting and financial penalties, while the group companies will be evaluated on merit. In 2014, Parrikar’s predecessor Arun Jaitley (now finance minister), had issued stern interim guidelines for dealing with the Finmeccanica group companies.

The virtual blacklisting of Finmeccanica and all its subsidiaries after the VVIP helicopter scandal threw off kilter a wide range of acquisition projects ranging from new 127 mm naval guns to short-range missiles. The US$250-million proposal to buy Black Shark heavy-weight torpedoes from a Finmeccanica subsidiary for the six Scorpene submarines was also scrapped.

Heavy Reliance on US

While the government is at it, experts say it would also do well to correct the skew in terms of defense purchases.

“Currently,” said retired Wing Commander Sarabjit Singh, “we’re buying arms mainly from the US. The last two years especially have seen American defense companies like Boeing and Lockheed Martin dominate our markets. This trend needs to change as we risk encouraging vested interests which defeats the very purpose of checking corruption.”

Hopefully, with the Modi government trying to diversify its arms purchase basket by including more countries (Russia, France, Israel, South Africa) into the mix, this deficiency will get addressed. India is currently working on a range of mega defense deals worth billions of dollars with Russia, including negotiations for a future fifth-generation fighter aircraft and a number of defense purchases like the US$6.5 billion acquisition of five S-400 Triumf advanced air defense missile systems.

New Delhi is also renewing its relationship with South African defense companies a decade after the previous UPA government blacklisted Denel, the country’s largest state-owned aerospace and defense technology conglomerate. Indian officials have visited Pretoria specifically to pitch and spread awareness about Modi’s liberalized defense regime.